Last week, ACT | The App Association sent a letter to the Federal Trade Commission (FTC) highlighting that the FTC’s proposed updates to the Hart-Scott-Rodino (HSR) merger notification rule fail to properly account for small business concerns. In assuming that the rule would have no significant effect on small companies, the FTC missed a key opportunity to bring small businesses to the table to provide input on how the rule might undermine their prospects. The oversight is an unfortunate result of the FTC’s recent hostility to acquisitions and part of a broader enforcement philosophy that has resulted in narrower paths to success and more forbidding barriers to entry.
Most federal rules are subject to the Regulatory Flexibility Act (RFA), which requires agencies to analyze the impact of those rules on small businesses, if they were to become final. However, if the agency certifies that the rule would “not, if promulgated, have a significant economic impact on a substantial number of small entities,” it need not perform the analysis. In this case, the FTC made the certification that the HSR rule wouldn’t have a significant enough effect to require an analysis, but it didn’t provide a “factual basis” for doing so, as the law requires. It also seems to have made a mistake by making the certification, insofar as the HSR rule will have serious negative consequences for small companies, especially those that specialize in innovation and may reach higher valuations.
In September of last year, several of our member companies signed onto a letter to the FTC pointing out the problems with the proposed updates to the HSR rule. As they noted, “[t]he FTC’s proposed updates to its HSR information disclosure requirements (and related changes by FTC to joint agency merger guidelines currently being proposed) will impose substantial burdens on small businesses like ours and close off the primary pathway to success we have.” As pointed out in a 2022 report, there are numerous recent instances of federal agencies failing to comply with RFA requirements, as determined by the Small Business Administration’s (SBA’s) Office of Advocacy. According to SBA, failure to account for “indirect” impacts on small businesses was a key problem in several of these instances of noncompliance. However, in this case, the FTC’s problem goes beyond ignoring indirect costs like those imposed on our members, as it failed to provide even a basic “factual basis” for certifying that there would be no significant effect on small businesses, which is the minimum required by the statute. With this letter, we are putting our concerns on the record and spotlighting the issue for Congress, which already has its eye on agencies’ tendency to skip these very steps.